By: World Intellectual Property Organisation (WIPO).
Used by permission.
What is a Trade Secret?
How are Trade Secrets Protected?
Measures to be Taken by Your SME
Cases in Which Your SME May
Benefit from Trade Secret Protection
What is a Trade
speaking, any confidential business information which provides an enterprise a
competitive edge may be considered a trade secret. Trade secrets encompass
manufacturing or industrial secrets and commercial secrets. The unauthorized use
of such information by persons other than the holder is regarded as an unfair
practice and a violation of the trade secret. Depending on the legal system, the
protection of trade secrets forms part of the general concept of protection
against unfair competition or is based on specific provisions or case law on the
protection of confidential information.
subject matter of trade secrets is usually defined in broad terms and includes
sales methods, distribution methods, consumer profiles,
lists of suppliers and clients, and manufacturing processes. While a final
determination of what information constitutes a trade secret will depend on the
circumstances of each individual case, clearly unfair practices in respect of
secret information include industrial or commercial espionage, breach of
contract and breach of confidence.
How are Trade
Contrary to patents, trade secrets are protected without registration, that is,
trade secrets are protected without any procedural formalities. Consequently, a
trade secret can be protected for an unlimited period of time. For these
reasons, the protection of trade secrets may appear to be particularly
attractive for SMEs. There are, however, some conditions for the information to
be considered a trade secret. Compliance with such conditions may turn out to be
more difficult and costly than it would appear at first glance. While these
conditions vary from country to country, some general standards exist which are
referred to in Art. 39 of the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS Agreement):
information must be secret (i.e. it is not generally known among, or readily
accessible to, circles that normally deal with the kind of information in
must have commercial value because it is a secret.
must have been subject to reasonable steps by the rightful holder of the
information to keep it secret (e.g., through confidentiality agreements).
develops a process for the manufacturing of its products that allows it to
produce its goods in a more cost-effective manner. Such a process provides the
enterprise a competitive edge over its competitors. The enterprise in question
may therefore value its know-how as a trade secret and would not want
competitors to learn about it. It makes sure that only a limited number of
people know the secret, and those who know it are made well aware that it is
confidential. When dealing with third parties or licensing its know-how, the
enterprise signs confidentiality agreements to ensure that all parties know that
the information is a secret. In such circumstances, the misappropriation of the
information by a competitor or by any third party would be considered a
violation of the enterprise’s trade secrets.
Precautionary Measures to be Taken by Your SME
secrets are widely used by SMEs. In fact, many SMEs rely almost exclusively on
trade secrets for the protection of their IP (although in many cases they may
not even be aware that trade secrets are legally protected). It is important,
therefore, to make sure that enterprises take all necessary measures to protect
their trade secrets effectively. This includes:
Firstly, considering whether the secret is patentable and, if so, whether it
would not be better protected by a patent.
Secondly, making sure that a limited number of people know the secret and
that all those who do are well aware that it is confidential information.
Thirdly, including confidentiality agreements within employees’ contracts.
Under the law of many countries, however, employees owe confidentiality to
their employer even without such agreements. The duty to maintain
confidentiality on the employer’s secrets generally remains, at least for a
certain period of time, even after the employee has left the employment.
Fourthly, signing confidentiality agreements with business partners whenever
disclosing confidential information.
Patents or Trade Secrets?
secrets are essentially of two kinds. On the one hand, trade secrets may concern
inventions or manufacturing processes that do not meet the patentability
criteria and therefore can only be protected as trade secrets. This would be the
case of customers lists or manufacturing processes that are not sufficiently
inventive to be granted a patent (though they may qualify for protection as a
model). On the other hand, trade secrets may concern inventions
that would fulfill the patentability criteria and could therefore be protected
by patents. In the latter case, the SME will face a choice: to patent the
invention or to keep it as a trade secret.
advantages of trade secrets include:
Trade secret protection has the advantage of not being limited in time
(patents last in general for up to 20 years). It may therefore continue
indefinitely as long as the secret is not revealed to the public.
Trade secrets involve no registration costs (though there may be high costs
related to keeping the information confidential).
Trade secrets have immediate effect.
Trade secret protection does not require compliance with formalities such as
disclosure of the information to a Government authority.
are, however, some concrete disadvantages of protecting confidential business
information as a trade secret, especially when the information meets the
criteria for patentability:
the secret is embodied in an
innovative product, others may be able to
inspect it, dissect it and analyze it (i.e. "reverse engineer" it) and
discover the secret and be thereafter entitled to use it. Trade secret
protection of an invention in fact does not provide the exclusive right to
exclude third parties from making commercial use of it. Only patents and
utility models can provide this type of protection.
Once the secret is made public, anyone may have access to it and use it at
trade secret is more difficult to enforce than a patent. The level of
protection granted to trade secrets varies significantly from country to
country, but is generally considered weak, particularly when compared with
the protection granted by a patent.
trade secret may be patented by someone else who developed the relevant
information by legitimate means.
Cases in Which
Your SME May Benefit from Trade Secret Protection
decision will have to be taken on a case-by-case basis, in the following
circumstances it would be advisable to make use of trade secret protection:
When the secret is not patentable.
When the likelihood is high that the information can be kept secret for a
considerable period of time. If the secret information consists of a
patentable invention, trade secret protection would only be convenient if
the secret can be kept confidential for over 20 years (period of protection
of a patent) and if others are not likely to come up with the same invention
in a legitimate way.
When the trade secret is not considered to be of such great value to be
deemed worth a patent (though a utility model may be a good alternative in
When the secret relates to a manufacturing process rather than to a product,
as products would be more likely to be reverse engineered.
When you have applied for a patent and are waiting for the patent to be
important to bear in mind, however, that trade secret protection is generally
weak in most countries, that the conditions for, and scope of, its protection
may vary significantly from country to country depending on the existing
statutory mechanisms and case law, and that the courts may require very
significant and possibly costly efforts to preserve secrecy. Patent or utility
model protection, wherever possible, will provide much stronger protection.